Introducing Unreal Finance, the $20 Billion Yield Futures Platform
We are introducing Unreal Finance, an on-chain decentralized yield futures platform with a mission of allowing people to “earn future yield instantly”.
TL;DR
Unreal Finance allows anyone to tokenize their future yield via a smart contract. With tokenized yield a lender can earn lock-in their interest rate (earn fixed interest), speculate & trade interest rate in different protocols, make use of instant arbitrage opportunities created by different protocols or just sell the token to earn instant interest.
- There is no way in the market to speculate on yield currently
- Retail wont use variable rate loans; fixed rate loans is the next step in lending
- Our new 3 token model allows us to separate yield from principal and trade both of the separately
- There are tons of use cases like: acquiring a fixed interest rate, yield arbitrage and so on
- Users will be able to get fixed interest rate loans instantly and traders will be able to speculate on interest rate!
- Creating a new Defi yield primitive
- Potential TVL is around 20 billion dollars; all lending protocols and farms can be integrated
- The future is exciting! We are building on L2, going multichain and building an AMM for depreciating assets like options, bonds and UTokens
Introduction
The world of DeFi is fast evolving. According to the popular DeFi aggregator DefiPulse, the industry is on an upward trajectory. And one application in particular that stands out in the DeFi industry is decentralized lending. Decentralized lending is revolutionary, as for the first time it allows people to lend and borrow funds without the need of a middleman.
But the current implementation of lending has its own problems. The most major problem is that the assets are overcollateralized, that is to borrow assets a person would need to deposit other assets of higher value. For example, in Maker to borrow $100 worth of DAI, a person might need to deposit $150 worth of ETH.
While whales and High Net Worth Individuals (HNI) are comfortable with such a proposition, common retail investors are not. Moreover, the rates of both borrowing and lending fluctuate on an hourly basis!
We believe the future of decentralized lending will take two routes — uncollateralized loans and/or fixed rates. Since the former isn’t possible on the current level of technology, we believe the next step for decentralized lending is fixed rates on the current protocol.
And this is where Unreal Finance comes in. Unreal Finance is an Unrealised Yield Futures (hence the name Unreal Finance) platform where users can lock in fixed interest rates on existing protocols by tokenizing the interest rates.
By tokenizing the interest rates, a user not only gets a fixed lock in rate but can also speculate on yield generated by underlying protocols (trade the tokens) and arbitrage between yield generating protocols.
How It Works
To allow owners to set a fixed interest rate on their yield for a fixed period of time, users will deposit their yield token (cUSDC, aDAI etc) into the Unreal Smart Contract. Two tokens will be issued: UToken and UOS.
UToken
UToken is a synthetic token minted by the protocol. UToken represents the future yield that will be generated. For example, a cUSDC-UToken represents the future yield generated by our capital inside Compound’s USDC lending pool. A UToken is just an ERC20 token and there are various ways to trade this synthetic token on Ethereum.
UOS
UOS is the Ownership Token for Unreal Finance. A user gets UOS tokens equivalent to the amount of underlying asset deposited. For example, 100 cUSDC deposited on Unreal Finance will generate 100 cUSDC-UOS tokens. The user can redeem the entire UOS for an equivalent amount of underlying from the contract when he wants to exit.
User Journey
- Users mints UToken and UOS through Unreal Finance by depositing yield tokens. UOS represents ownership of the underlying yield token, and UToken represents the future yield of the underlying yield token.
- The Minter can sell the UToken via any popular AMMs or can add liquidity to the UToken pair.
- UTokens act like a regular ERC20 token — that is, it can be purchased or sold. After the change of ownership has occurred, the entitlement of subsequent interest revenue tied to the underlying yield token will be changed to the new UToken owner.
- The UToken and UOS token can be easily converted to the underlying asset.
Use Cases
Fixed Interest Rate
The interest rate on current lending protocols fluctuate regularly. But suppose Alice wants to earn a fixed interest rate, she can use Unreal Finance. Alice deposits her interest-bearing tokens to Unreal Finance and mints UToken and UOS token. Alice can instantly sell the UToken at the exact yield she requires.
Yield Arbitrage
Unreal Finance provides arbitrageurs more opportunities to generate profit with minimal risk. Arbitrageurs can now arbitrage between different yield sources like Aave stable rate, a new yield farm and Unreal Finance and make profits while making the market more stable.
Capital Efficient Yield Exposure
Currently to obtain yield exposure you need to deploy capital that will generate the yield. For example if you think LINK lending rates will increase you have to deposit and lock LINK to get the yield benefits.
But using Unreal Finance, if a trader holds the view that lending rates on LINK will continue to increase, he can simply buy UToken tokens from the market as UTokens are synthetic yield tokens and track the yield itself.
For example, assuming the yield of USDC on Compound is at 12% pa, the trader needs to deposit and lock 100 USDC for an year to earn 12 USDC. If the trader thinks that in future the interest rate on Compound will increase, the trader can simply purchase UToken instead of locking the funds. This method is much more capital efficient way to gain yield exposure.
Build On Unreal Finance
Unreal Finance brings a new DeFi primitive into the market that allows people to speculate on capital yield; it can allow creation of several new products like Interest Rate Swaps, Spread Trading, Yield Protection products and so much more! We are excited to see what our community builds on top of Unreal Finance.
Initial Integrations
Unreal Finance will be initially beginning with four integrations:
- Yearn
- Compound
- Aave
- UniLend
Market Size
The total value locked (TVL) on lending protocol is worth around $20 billion currently and this number is only going to grow in the future. Since Unreal Finance is not competing with lending protocol but rather acting as a layer on top of existing protocol to manage Yield efficiently, the total addressable market size (TAM) is as big as the entire decentralized lending space.
Future Proposals — We are actively working on:
Layer-2
We are experimenting with Optimism and a new way to move this system to L2 while keeping all assets on L1; this is possible because we mint synthetic yield assets. We can ask users to deposit on L1 and mint them synthetic tokens on L2 which represent the yield. Speculators and traders can enjoy extremely fast and cheap transactions while being able to interact with other major protocols like Uniswap, Synthetix and MakerDAO on Optimism. We will release our L2 POC shortly after our mainnet release.
Multichain
One of our short term goals is to deploy on every EVM chain out there and then later become a yield aggregator as we anticipate all yield generating protocols to move to multiple chains too.
AMM for Time Depreciating Assets
There are several financial instruments that create assets that depreciate with time - for example options. We need to create a constant volatility AMM for such assets as otherwise on current popular AMMs like Uniswap and SushiSwap liquidity providers might have high impermanent loss.
Conclusion
Unreal Finance is working to create a new niche in the market which has largely been untapped in the DeFi space. We believe our efforts will not only revolutionize the decentralized lending space, but also level the playing field in the market by bringing more tools in the space of decentralized lending.
Do you agree with us that future yield has to be tokenized? Share your thoughts in the comments.
For any queries/suggestions, please reach out to us on Twitter, engage in our Telegram Community, & Join our Reddit to say hi 👋
